Diesel under-recovery declines steeply, deregulation imminent

Diesel price deregulation looks imminent after the difference between retail sale price and its actual cost dropped to a historic low of just 8 paisa.

This is the first time in over a decade that retail pump prices are almost in line with imported cost of the nation's most consumed fuel.

Under-recovery or the gap between retail selling price and the cost of import has dipped to 8 paisa a litre, helped by the monthly increases and softening in international oil rates, an official statement said here.

If the trend continues, diesel price will be at par with international rates by next week, not necessitating the next increase of 50 paisa a litre due on October 1.

Diesel prices since January 2013 have been raised every month by up to 50 paise per litre to trim the losses. Rates were last raised on August 31 after which losses had dipped.

Rates have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013 when the previous UPA government had decided on small monthly hikes.

Officials said the monthly increases had trimmed losses to less than Rs 3 per litre in May last year before a fall in rupee value led to losses on diesel sale widening to Rs 14.50 per litre in September 2013.

Since then, monthly increases have continued and the rupee has strengthened.

Losses have fallen rapidly since March as the prospects of a stable and decisive government under Prime Minister Narendra Modi helped the rupee gain against the dollar.

Losses on diesel stood at Rs 8.37 per litre in March.

When Modi government came to power in May, losses on diesel sales stood at Rs 4.41 a litre. They fell to Rs 1.62 a litre in the second half of June but doubled to Rs 3.40 in first fortnight of July. The losses fell to Rs 2.49 in second half of July. They stood at Rs 1.78 in second half of August.

Petrol price was deregulated in June 2010 and has moved more or less in tandem with the cost. The softening in international rates has seen rates being cut thrice in August.

State-owned oil firms calculate the desired retail selling price of petrol and diesel on 1st and 16th of month, based on average international oil rates and foreign exchange value in the previous fortnight.

While petrol rates are revised accordingly, diesel prices are hiked on the 1st of every month.

Besides diesel, the oil firms are losing Rs 32.67 a litre on kerosene and Rs 427.82 on LPG, the statement said.

"Oil Marketing Companies (OMCs) are now incurring combined daily under-recovery (revenue loss) of about Rs 195 crore on the sale of diesel, PDS kerosene and domestic LPG. This is lower than Rs 230 crore daily under-recoveries during previous fortnight," it said.

The under-recoveries for the financial year 2014-15 are projected to be Rs 91,665 crore as opposed to Rs 1,39,869 crore in 2013-14.